Make Sure Your Contracts Make Sense

Drawing on Parchment by Hilke Kurzke from Flickr (Creative Commons License)

One area where many entrepreneurs struggle is understanding contracts or creating custom contracts to fit their needs. Contracts are essential for every entrepreneur, but there are nothing to be afraid of. The best way I know to describe them is they are relationship management documents. They keep everyone involved in a project on the same page and hopefully are written in a way that lays out and meets everyone’s expectations and needs.

Map Out the Relationship
Before I begin writing a contract for a client, I ask them to explain the lifespan of the contract and the expected interactions between the parties. I want to have a clear mental picture of the relationships between the people involved and the expected timeline they will follow during their working relationship, including how they will address common problems in that type of work or industry. The better I understand the interactions between the parties, the easier it is to draft a contract that fits their needs, whether it’s a custom template or a contract for a specific situation.

I recommend everyone involved in a contract do the same – with a timeline, flow chart, or an outline. This will help you clarify for yourself what your expectations are, and you can use this as a guide to make sure your contract addresses all your needs and concerns.

Compare Your Vision to Reality
Once you have a contract that matches the way you envision the relationship working, compare the terms of the document to reality. If your contract template states that payment must be made within 30 days of sending the invoice but you know you’re working with a company that takes 60 days to pay invoices, no matter who they’re form, change your contract so it matches their process.

Likewise, worst-case scenario situations to make sure your what-if provisions make sense. In many contracts, I write a provision that states that disputes will be resolved in litigation. However, if you’re in a situation where a client didn’t pay for a project and owes you $1,000, it may not be worth it if you have to file a claim in small claims court, get the person served, and then go after them for payment if the court renders a judgment in your favor.

In that type of situation, it may be better to write the contract to state that the client won’t get the final work product until their bill is paid in full. The dispute resolution clause can still mandate litigation, but chances of you having to go to court to get paid drop if the client won’t get what they hired your to do until you get paid.

Contract Disputes – Your State, Your State’s Laws
Every contract needs a provision that states how the parties will resolve problems when they occur. This should include where the parties will resolve problems (e.g., Superior Court of Maricopa County, Arizona) and that the parties consent to this venue (in case you’re dealing with an out-of-state client). It should also include which state’s law governs the contract. Whenever possible, you want your contracts to state that all problems will be resolved on your turf and under your state’s laws.

Ideally, your contracts, especially your templates, will be written or reviewed by a business lawyer to ensure it is valid and complete. If you sign a contract that is legal, but has terms you later realize are not favorable to you, there may be nothing you can do to change them. Your contract should also be written in plain English so the parties involved can easily refer to it throughout their working relationship without needing their lawyers to translate the legalese.

If you want to connect with me and my experiences as a contract writer, you can contact me directly or connect with me on TwitterFacebookYouTube, or LinkedIn. You can also get access to more exclusive content that is available only to people on my mailing list, by subscribing here.

Contract Amendments – Always in Writing

Signature by Sebastien Wiertz from Flickr (Creative Commons License)

When a lawyer writes a contract for a client, it usually includes provisions that say that the all the terms of the agreement are contained in the document and all changes to the contract must be in writing. It may look something like this:

This Agreement is the entire understanding between the Parties concerning the subject of this Agreement. This Agreement replaces and supersedes any and all prior oral or written agreements and discussions between the Parties on that subject. All amendments to this Agreement must be in writing and signed by the Parties.

Contracts are relationship management documents. They keep everyone on the same page to prevent problems down the line or to help resolve problems when they occur. One of the challenges I encounter with contract clients is they often don’t follow the contract they signed and amend the agreement that is documented only in an email exchange, or worse, a undocumented verbal agreement.

Always Get It In Writing
The purpose of the “entire agreement” clause is to put all the terms of the contract in a single document. All written amendments should be stored with the original agreement – in hard copy and/or electronically, so if there is a question or dispute, the parties only need to review the single or amended document. They don’t have to piece together the contract from the parties’ communications and actions.

If you don’t get your amendments in writing, you’re asking for trouble. There could be confusion about what the change is, or worse, the other side could deny the existence of an amendment and screw you over. Remember, the law does not care about what you know, only what you can prove. If you don’t get your amendments in writing, and you have an “entire agreement” clause, if you have to go to court, the judge could say the amendment doesn’t exist.

Contract Amendments Can Be Easy
Why don’t people put their contract amendments in writing. I suspect it’s because they think it will be a hassle, cause a delay in a project, be time-consuming, or maybe they don’t even think to put in it writing because “it’s not a big deal.” In general, contracts exist, not for when things go right, but when they go wrong. What you think is a minor verbal change when both sides are getting along can become a big problem if things turn sour.

If you spend $100s or $1,000s to have a lawyer draft your contract, don’t revise it without their involvement. You’ve invested time and money to protect your interests. You don’t want to inadvertently throw that away with a damaging and undocumented revision.

Contracts are your Friends
These are some of my guidelines when it comes to reading and drafting contracts:

  • Never sign a contract you don’t understand. Don’t be afraid to ask for clarification.
  • Whomever writes a contract does so for their or their client’s benefit. Keep that in mind when a contract is written by the other side. (Lawyers have an obligation to represent their clients zealously.)
  • Substantial business contracts should always be reviewed by a lawyer to ensure it’s complete and protects your interests.

A contract should be written to protect everyone involved – to make sure everyone understands and agrees to the same course of action.

I’m constantly reviewing and drafting all types of contracts for clients. If you want to keep up with what I’m doing or if you need help, you can contact me directly or connect with me on TwitterFacebookYouTube, or LinkedIn. You can also get access to more exclusive content that is available only to people on my mailing list, by subscribing here.

I Want to Humanize Contracts

The Anxious Type by JD Hancock from Flickr (Creative Commons License)

The Anxious Type by JD Hancock from Flickr (Creative Commons License)

A friend from my business mastermind group asked me to draft a nondisclosure agreement for her for an upcoming meeting she has to discuss a future project with a potential collaborator. She wants to be able to discuss the project to see if they want to participate in it without fear that the other person will decline the opportunity but then steal her idea and compete against her. (My friend is very smart.)

The first thing I did was grab my legal pad and start jotting down ideas for clauses to include – scope of the agreement, nondisclosure provision, non-compete provision, dispute resolution, severability, etc. As a lawyer, it’s my job to go through my mental checklist of all the terms the contract should have. I’ve always said that contracts are relationship management documents and they need to be written to cover that extent of it accordingly.

This morning, as I was walking my dog, I started looking at this contract from a different perspective – how can I humanize this agreement?

In my experience, many people are afraid of contracts or they don’t read them because they assume that they are full of legalese that they won’t understand or they’re just an annoying hurdle to clear as part of a more desirable event. When I was in law school, my friends and I went to Ladies Paintball Night; the worker behind the desk said he’d never seen anyone read the waiver prior to signing it. (We altered it, then we signed it.) When I moved to my current home, it took me hours to read the CC&Rs for my HOA. They were 78 pages long, and filled with excessive legalese I swear you needed a first-year law school education, at least property class, to understand them.

Contracts should be written in plain English, be as short as possible (cover the scope then stop), and set both sides up to feel secure in what they’re getting into. Whenever I write a contract, I prefer to refer to the parties as “I” and “you” because that’s how people speak and think. In regards to this current project, I want to phrase the provisions in a way so that when my friend presents the contract to prospective collaborators, they don’t feel like there being attacked or distrusted. This document should help both sides feel comfortable speaking candidly. Here are a few of the thoughts I have about how I want to phrase some of the provisions:

  • I would not have asked for this meeting if I didn’t think you were an ideal collaborator for this project. But because this project is not only a central component of my future business plan and projected livelihood, it’s also dear to my heart, as a business owner, it’s essential that I protect it and myself. This agreement protects you too. This meeting, regardless of whether we work together on this project, should not be a hindrance to your ability to continue your professional pursuits.
  • Although I don’t anticipate there being any problems between us as a result of this meeting (otherwise we wouldn’t be having it), this is how we will address problems should it occur. I hope neither of us is in a situation where we must resort to these extreme measures, but as business people we know we must be prepared for the worst-case scenarios, even when working with the best of expectations.

There is nothing wrong with contracts using the verbiage that humanizes both sides. In fact, I encourage it. People do business with people; therefore, contracts should be written from that perspective first. When appropriate, I also encourage clients to personalize their contracts and include a touch of humor or “Easter eggs” (because I’m weird like that). You can put anything you want in a contract, as long as it’s not illegal.

I love writing contracts, and I hope I get more opportunities to write agreements that are effective for the needs of my clients’ businesses and also who they are as individuals. If you want to connect with me and my experiences as a contract writer (including how I change almost every liability waiver I sign), you can contact me directly or connect with me on TwitterFacebookYouTube, or LinkedIn. You can also get access to more exclusive content that is available only to people on my mailing list, by subscribing here.

Thoughts About Effective Contracts

Signing Paperwork by Dan Moyle from Flickr (Creative Commons License)

Signing Paperwork by Dan Moyle from Flickr (Creative Commons License)

Some people think contracts are intimidating and others find them mind-numbingly boring. In general, I like working with contracts. I know this makes me sound like a big dork, but it’s true. I get to help my clients protect themselves and write for a living – two things I enjoy.

When it comes to contracts, some clients hire me to review an existing contract and some hire me to draft a contract from scratch. Here’s one thing I learned in law school and have verified to be true in practice: the person who writes the contract, does so in the best interest of their client. So when you read a contract, think about which side wrote the first draft because I will guarantee it’s biased in their favor.

For example, I’ve written plenty of contracts for situations where a business hires an independent contractor to work on a project. The contract verbiage can be very different when I’m representing the business than when I’m representing the contractor. This is why a lot of lawyers want to be the side that writes the first draft of a contract because they want to write in their client’s favor and negotiate from there.

Recently, I’ve worked on a few contracts that reminded me how important it is to still be reasonable when writing contracts. If your contract template is too biased in your favor, or doesn’t give the other side any sense of security in the relationship, you may have a hard time finding people who are willing to sign it.

I’ve seen this in particular to contract provisions about changing or terminating a contract. There are times, like when you’re a long-term service provider, where you need to be able to change the terms of the original agreement to reflect changes in the industry, your services, or your rates and it would be bad business practice to let the customer change the agreement. In some circumstances, the contract says that the provider can make any changes at any time and if the customer doesn’t like it, they can take their business elsewhere – very take it or leave it. Other times, it’s prudent to specify under what circumstances changes will be made, how much warning the customer will have prior to changes going into effect, and how that notification will be delivered.

I prefer to think about contracts as relationship management documents.   When you’re writing or reviewing a contract, think about the expected lifespan of your relationship with the other side and how you want to feel about that relationship at the end of the day. And remember that contracts are binding documents so it’s important that your contracts reflect your needs and protect your interests. This is one of the times where it’s important to make sure you have an accurate document before you sign it because you may not be able to change it later if you realize after the fact that you’ve made a mistake.

If you want to chat more about contracts, you can connect with me on TwitterFacebookYouTubeLinkedIn, or you can email me. You can also subscribe to the Carter Law Firm monthly newsletter.
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